1. Country A produces two goods: agricultural goods and automotive goods. Resources are highly specialized in that some resources are relatively good in agriculture and others are relatively good in the automotive industry. a. Draw a PPF for country A that has the proper shape. Label the axes properly. Briefly explain the shape. b. Demonstrate graphically the effect of new technology which improves agricultural production but not automotive production. c. Demonstrate graphically the effect of population growth. d. Demonstrate graphically the effect of an economy-wide labor strike which leads to a temporary drop in employment and therefore a temporary reduction in production. Explain briefly. e. Draw the PPF for country A if resources were not specialized. Briefly explain the difference between this PPF and the one in (a). f. Suppose that country A decides to trade with a nearby economy and both countries have resources that are not specialized. The trade partners produce at their comparative advantage and therefore gains from trade are realized. Using one graph with one PPF, show country A's post-trade production and consumption assuming that country A has a lower opportunity cost in agriculture. Explain briefly. 2. The following table presents the time required for the United States and Mexico to produce one tank or one taco. United States Mexico Tank Taco 1 hour 2 hours 1 minute 1.5 minutes a. Who has the absolute advantage in tank production? Taco production? b. Who has the comparative advantage in tank production? Taco production? (Hint: in class, we assume a fixed time period. Convert the table to a fixed time period so that you can get opportunity costs in output terms) Suppose now that the US and Mexico spend 12 hours per day in production. c. Draw the workday PPF for the US and Mexico assuming constant opportunity cost. Label axes precisely. d. If the US currently produces 9 tanks and 180 tacos in a 12-hour work day and Mexico currently produces 3 tanks and 240 tacos in a 12-hour work day and the countries decided to trade their one workday output: i. Who should produce tanks? Tacos? ii. How does total (Mexico plus US) daily post-trade consumption compare to total daily pre-trade consumption? Are there gains from trade? e. Draw the workday PPF for the US if new legislation allows companies to use a 16 hour work day. Is the change necessarily beneficial to US workers?